Research On The Timing Behaviors Of CEO Stock Option Awards

This article analyzes the timing behaviors of CEO stock option awards, which as a method of investigating corporate managers’ influence on the terms of their own compensation. In a sample of 228 listed companies who announced the draft of stock option incentive plans from the year 2006-2014, this paper finds that stock price changes around CEO stock option awards for different strike pricing methods, especially, the raw stock returns are negative beforeward and positive afterward when setting strike price based on the stock price in a period of time before the awarding date. Moreover, this paper documents that the awards are more likely to occur after dismal raw stock returns and before high raw stock returns, the raw stock returns immediately surrounding the awards have the greatest effect on the occurrence of awards, the results suggest that executives time the awarding date for the awards when setting strike price based on the stock price in a period of time before the awarding date. Further, no matter what the strike pricing method is chosen, CEOs manage investors’ expectations around award dates by insignificantly disclosing more bad news prior to the awarding date and significantly disclosing more good news afterward. Our findings suggest that there are both existing timing the awarding date and timing the news around the awarding date for the first strike pricing method, but for the second strike pricing method, there is only existing timing the news around the awarding date. Either choose to grant or choose to disclose, CEOs make timing decisions aimed at reducing exercise costs and improve value-based compensation. Furthermore, CEO serves on their own compensation committees, smaller scales and lower intangible assets ratio of the company will be more inclined to select the first strike pricing method. Our study contributes to the literature on executive compensation by providing evidence in consistent with CEOs timing the awarding date and news around the awarding date to increase their stock option compensation. The conclusions of this study provide favorable evidence to improve the internal governance of listed companies in China and improve the optionsrelated regulations and policies.